Different Versions of the Easterlin Paradox: New Evidence for European Countries

52 Pages Posted: 17 Dec 2018

See all articles by Casper Kaiser

Casper Kaiser

University of Oxford - Nuffield College of Medicine

Maarten Vendrik

University of Maastricht; IZA Institute of Labor Economics

Abstract

Richer people are happier than poorer people, but when a country becomes richer over time, its people do not become happier. This seemingly contradictory pair of findings of Richard Easterlin has be-come famous as the Easterlin Paradox. However, it was met with counterevidence. To shed more light on this controversy, we distinguish between five different versions of the paradox. These versions apply to either groups of countries or individual countries, and to either the long or the medium term.We argue that the long term is most appropriate for testing the paradox, and that tests of the paradox should always control for an autonomous time trend. Unfortunately, this requirement renders the long-term version of the paradox for individual countries untestable. We test all other versions of the paradox with Eurobarometer data from 27 European countries. We do so by estimating country-panel equations for mean life satisfaction that include trend and cyclical components of per capita GDP as regressors.When testing variants of the paradox that apply to groups of countries, we find a clear and robust confirmation of the long- and medium-term versions of the paradox for a group of nine Western and Northern European countries. Moreover, we obtain a non-robust rejection of the medium-term variant of the paradox for a set of eleven Eastern European countries. On the level of individual countries, the medium-term variant of the paradox clearly holds for the nine Western and Northern European countries, but is consistently rejected for Greece, Ireland, Italy, and Spain.In the case of the Eastern European countries, the medium-term version of the paradox is rejected for Bulgaria, Lithuania, and Poland. As the Western and Northern European countries have a high per capita GDP as compared to that of Southern and Eastern European countries, our results are in line with the finding of Proto and Rustichini (2013), who find a non-monotonic relation between per capita GDP and life satisfaction over time which is positive for poorer countries, but flat (or negative) for richer countries.

Keywords: Easterlin Paradox, happiness, life satisfaction, economic growth, Hodrick-Prescott filter, European country panel

JEL Classification: I31, I32, O11

Suggested Citation

Kaiser, Casper and Vendrik, Maarten, Different Versions of the Easterlin Paradox: New Evidence for European Countries. IZA Discussion Paper No. 11994. Available at SSRN: https://ssrn.com/abstract=3301760

Casper Kaiser (Contact Author)

University of Oxford - Nuffield College of Medicine

New Road
Oxford, OX1 1NF
United Kingdom

Maarten Vendrik

University of Maastricht ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
16
Abstract Views
72
PlumX Metrics